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Married Filing Separately: When Does It Make Sense?

Picking your first house, learning about each other, planning for your future – of the many joys of marriage, sitting down and figuring out how you’ll prepare taxes is not usually one of them. If you’re married, there are two options for your filing status with the IRS: married filing jointly, or married filing separately.

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The Benefits of Married Filing Separately

The tax-filing status known as married filing separately means that you and your spouse each report income and deductions, credits and exemptions on separate tax returns. While the tax code encourages married couples to file their tax returns jointly, there are a few scenarios where married filing separately could be beneficial.

These include when both spouses have about the same amount of income and when combining income pushes a couple into a higher tax bracket. Other scenarios where married filing separately might make sense include the following.

You and/or your spouse have deductions based on Adjusted Gross Income (AGI) — High medical expenses are the most common example of a deduction that is impacted by AGI. You can deduct medical expenses that exceed 10% of your AGI.

You and/or your spouse have income-based student loans — Student loan payments are based on each spouse’s income, rather than on joint income as with separately filed returns. In some cases, this may reduce your obligation to make higher student loan payments. However, there are also education tax credits you might lose, so be sure to weigh your options.

You live in a community property state — If you or your spouse live in what is known as a community property state, special rules apply for allocating income and assets. Even though you may file separate returns, each of you may be obligated to report half of combined income and deductions on each return.

To protect yourself against liability issues — Married filing separately may be an appropriate option if there is a lack of trust between spouses. Both partners must consent to filing a joint tax return, so filing separately can help if one spouse suspects the other of tax evasion or misfiling tax documents.

You are not willing to file together — Married filing separately can also accommodate couples who are in the process of divorce or separation. Even if divorce or separation isn’t an issue, filing separately can allow each spouse to maintain autonomy over their own tax situation and potentially their own finances.

In general, choosing the married filing separately status makes the most sense when couples without dependents have large itemized deductions or are separating. Note that if you’re married and file separately, you and your spouse will include each other’s information on your separate tax returns. If one of you itemizes deductions, the other must claim a standard deduction of zero. This means the other spouse should also itemize deductions. The standard deduction for tax year 2020 is $12,400 for individuals and $24,800 for marked couples filing jointly.

Read More: How Marriage Can Impact Your Taxes

The Benefits of Married Filing Jointly

Filing jointly makes sense for most married couples. In fact, around 95% of couples decide to file jointly because it tends to result in a lower tax bill and easier filing. The tax credit and deductions couples may enjoy when filing jointly include the following:

  • Earned income credit
  • Child and dependent care credit
  • Exclusion or credit for adoption expenses
  • Education credits such as the Lifetime Learning Credit and the American Opportunity Credit
  • Tax-free exclusion of bond interest and Social Security benefits
  • Traditional and Roth IRA contribution deductions
  • Net capital losses in excess of capital gains deduction
  • Student loan interest deduction

Read More: Tax Benefits of Marriage

Which Filing Status Should You Choose?

The best way to figure out whether filing separately or jointly is best for you is to prepare your tax return both ways and look at which method results in the lowest tax liability. If you use tax software to prepare your tax return, many of today’s products will perform this calculation for you and provide a recommendation.

Remember, these are just general guidelines regarding the pros and cons of various tax filing statuses. You should consult a tax professional about your specific circumstances.

Personal Capital’s team of dedicated financial advisors can help with tax optimization and strategy as it relates to your holistic financial plan. Schedule a free consultation with an advisor today for a no-obligation review of your portfolio and financial plan.

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The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

As a tax specialist at Personal Capital, Brian brings a depth of tax knowledge that can be coordinated with clients’ tax planning strategies. Brian has an extensive background in tax preparation with high-net worth individuals, as well as business owners and specializes in optimizing tax efficiency for individual client situations. Brian is a Certified Public Accountant licensed in Colorado. He received his BA in Business Administration with an emphasis in accounting from Washington State University. In his free time, he enjoys spending time with his family and friends, bicycling, skiing, and volunteering and giving back to the community.


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